Man Group: Seven Historical Episodes of Stagflation
Analysis reveals only seven U.S. recessions since 1890 have met stagflation criteria. Current conditions warrant observation.
Investment firm Man Group PLC has released an analysis of historical stagflationary periods. The firm notes that stagflation, a rare phenomenon characterized by slowing economic growth alongside rising inflation, has become a topic of concern.
Man Group's research indicates that out of 27 U.S. recessions since 1890, only seven have met the study's definition of stagflation. These periods have historically coincided with wars or significant monetary policy shifts. While current conditions, such as war-driven inflation and questions surrounding central bank independence, may present parallels, the firm states that the data does not yet fully support a stagflation scenario.
Based on past stagflations, trend-following investment strategies have emerged as the most consistent hedge. These strategies proved effective in six of the seven historical episodes. Gold, on the other hand, has been a surprising disappointment, failing to provide consistent protection except in one specific instance related to the unwinding of the Bretton Woods system.
Equity markets generally experienced drawdowns during stagflationary periods, but these declines were often shallower than feared, followed by swift recoveries. Bond performance was linked to monetary credibility; strong central bank independence correlated with positive returns, while weakened independence led to poor performance.
Man Group clarifies that there is no universally agreed-upon definition of stagflation. Their working definition defines it as an NBER-defined recession with annualized inflation at or above 3%. The analysis examines seven historical instances and their impact on various asset classes.